Many of the specific proposals will require legislation, and today’s announcement will drop the plan into an already heated debate on Capitol Hill about the eventual shape of reform. The financial crisis has forced broad consensus that changes are necessary, but there are wide disagreements about the details.

The proposed Consumer Financial Protection Agency would have broad authority to regulate the relationship between financial companies and consumers of mortgage loans, credit cards, checking accounts and other financial products. It would define standards, police compliance and penalize delinquent firms. Other agencies, particularly the Federal Reserve, would surrender some powers.

One idea highlighted by the administration is to require that lenders offer all customers standard “plain vanilla” loans with simple features and streamlined pricing, such as 30-year, fixed-rate mortgages. The sale of more loans with more complicated terms would be subjected to greater scrutiny by the agency. It could even require that customers make a written choice to select anything other than a vanilla loan.

The agency would have authority to overhaul a tangled mess of federal regulations that many financial experts regard as outdated, insufficient and inadequately enforced. An oft-cited example is the massive stack of paperwork handed to mortgage borrowers at closing, including several calculations of the true cost of the loan itself.

“Consumers should have clear disclosure regarding the consequences of their financial decisions,” the plan states.

Agreed. And while we can blame consumers all we want for overreaching in the past couple decades, let’s not kid ourselves…had these measures been in place this situation never would have happened.

However, I think the biggest news to come out of this (which isn’t in the story) is that all of the agencies that used to regulate banks will now be folded into one entity. This is so banks can’t pick and choose who will regulate them…and the notion that they could do that before makes my stomach turn. Gee, I wonder who they’re going to pick…perhaps the laziest agency?

Seriously, you don’t think the current system was royally screwed up? Check out how it worked…

Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.

I don’t think you have to be an expert to see that this could easily lead to all sorts of irregularities. So, again, having one agency do this is the smart way to go.

I agree that this sort of stuff deserves to happen in the wake of the negligent and fraudulent behavior that went on in various sectors related to the creation and perpetuation of the since-burst real estate bubble.

And I am a huge advocate of protecting and informing consumers.

Still, the skeptic in me can’t help but to wonder whether the end result of additional mandatory disclosure rules will be no more than to add 4 to 8 pages to the various lengthy reports that get mailed to folks so that they can toss them into the recycling bin without even opening them.

Mandatory disclosure is nice, but it’s insufficient. We need to mandate clarity, intelligibility, brevity, digestability, and so on. In other words, to mandate that a certain message be delivered is important, but it’s useless unless we also take steps to make sure the message is actually received and understood by recipients. Or else the rules will do no real good.

This in the end will only help a little bit. Tighter rules are nice, but if there isn’t the desire to enforce the rules due to pressure from either Congress or the White House, it won’t amount to much. The institutions are still so large that the failure of one can still have a huge impact on the economy, so the natural risk/gain goes right out the window.

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